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Spanish construction firm Grupo Ferrovial raised its bid for UK airports operator BAA to GBP£9.73 billion (USD$18.26 billion) on Tuesday but BAA said it was still too low.

Ferrovial, which raised its offer to 900 pence a share in cash for the owner of Heathrow, Gatwick and Stansted airports from the previous proposal of 810p, said BAA's claim last week to be worth more than 940p a share was «not credible».

It said the new bid, which also comes with offers for BAA's convertible bonds, was 41 percent above BAA's average share price for the 30 days ended February 6, the day before speculation emerged about a possible offer for the group.

«The board of the offeror believes that the increased offers represent extremely attractive value for BAA shareholders and BAA convertible bondholders respectively and hence is disappointed that BAA has chosen to reject such offers without further discussion,» Ferrovial said in a statement.

BAA said last week it believed it was worth more than GBP£10 billion (USD$18.77 billion) and sought to keep shareholder support by offering a 40 percent increase in dividends and a GBP£750 million (USD$1.41 billion) share buyback.

«The board is clear that it (the offer) still falls well short of the true value of the company. The board is also clear that the revised offer does not reflect a suitable premium for control of BAA's unique assets,» the airports operator said on Tuesday in a statement.

Ferrovial said BAA's own valuation failed to reflect a number of factors including uncertainty over its growth prospects in the highly regulated UK market and failures to cut costs and meet its own UK passenger growth forecasts.

The Office of Fair Trading (OFT) said last week it was looking at the structure of the UK airports market, which analysts say could lead to BAA, the world's biggest airport operator with stakes in airports in the United States, Australia, Hungary and Italy, facing tighter regulation at home or renewed calls to be broken up.

BAA has faced the threat of a forced break-up for years because of its ownership of seven UK airports -- dominance which is set to grow as BAA plans to open a new terminal at Heathrow in 2008 and a new runaway at Stansted by 2013.

«The market won't take this increase very well, particularly after the announcements by the OFT and with a new rejection from BAA,» said Gonzalo Moros, an analyst at Ahorro Corporacion brokerage.

«I think this is not the best situation for Ferrovial, which is a sufficiently diversified group. BAA would have been a good option as long as it hadn't brought up too many problems.»

European airports have been drawing investors attracted by a highly visible, long-term outlook which predicts traffic in Europe will double by 2020 to 2 billion passengers.

BAA beat Germany's Hochtief in December to buy control of Hungary's Budapest Airport from the state for USD$2.2 billion.

(Reuters)

[tags]BAA, Airports, Spain, Ferrovial[/tags]